This is INSANE! How can these morons sign such a contract? And then you wonder why carrier fees have gone up...sheesh...
Verizon Seen Owing Apple Up to $14 Billion for IPhones
By Olga Kharif - Jul 10, 2013 9:35 AM MT
bloomberg.com
Verizon Wireless may end up owing Apple Inc. (AAPL) as much as $14 billion in purchase commitments over time if the mobile carrier fails to sell an agreed number of iPhones, a report from Moffett Research LLC said.
Under a multiyear deal signed with Apple in 2010, Verizon Wireless is obligated to buy $23.5 billion worth of iPhones in 2013 alone, according to Craig Moffett, a telecommunications analyst who left Sanford C. Bernstein & Co. earlier this year to start his own research firm. Since the purchase commitment is more than twice what Verizon Wireless sold in 2012, the company may have a shortfall of $12 billion to $14 billion, worth $4 to $5 per share, Moffett said in the report.
The report suggests sluggish demand for the iPhone, which accounts for about half of Apple’s sales. Other wireless providers around the world may be experiencing iPhone sales deficits as well, Moffett said. The sales shortfall bolsters analysts’ projection for Apple to report a 22 percent decline in net income to $6.87 billion in the third fiscal quarter, according to the average of estimates compiled by Bloomberg.
“It is likely that Apple would be reluctant to simply ignore these commitments, since many other carriers around the world are probably in a similar situation, and a simple amnesty would set an unwanted precedent,” Moffett wrote. “It is therefore unrealistic to think that Apple won’t extract some consideration for renegotiating these shortfalls.”
Trudy Muller, a spokeswoman for Apple, and Brenda Raney, a spokeswoman for Verizon Wireless, declined to comment on Verizon’s iPhone purchase commitments.
Sprint Commitments Sprint Nextel Corp. (S), which began selling iPhones in 2011, will probably be able to meet its commitment to buy $15.5 billion worth of iPhones over four years “barring any hiccup in Sprint’s rate of handset sales or the popularity of the iPhone,” Moffett said.
Scott Sloat, a spokesman for Sprint, didn’t have an immediate response.
Verizon and Sprint’s contractual obligations with Apple may be the reason why some carriers are holding out on partnering with the Cupertino, California-based company, Moffett said.
Apple has announced fewer than a dozen new wireless-service providers to sell iPhones since September 2011, leaving the total at about 240. Many carriers balk at working with Apple because of the conditions it imposes. Holdouts include China Mobile Ltd. (941), the world’s biggest phone company, as well as carriers in countries such as Japan, India and Russia, representing billions of potential customers.
To contact the reporter on this story: Olga Kharif in Portland at okharif@bloomberg.net
To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net |
